U.S. taxpayers who own foreign companies face some of the most complex reporting requirements in the tax code. Many business owners believe that if income is earned abroad, it is not subject to U.S. reporting — this is incorrect. This guide explains the ongoing reporting obligations for U.S. owners of foreign corporations, including Form 5471, GILTI tax exposure, and common compliance risks.
Who Is Considered a U.S. Owner of a Foreign Company?
You are considered a U.S. owner if you are a U.S. citizen, green card holder, or U.S. resident who owns shares directly or indirectly in a foreign corporation. Ownership thresholds trigger different reporting categories under Form 5471.
What Is Form 5471?
Form 5471 is an informational return required for U.S. persons with ownership or control in foreign corporations. It is not optional and carries severe penalties for non-compliance, even when no tax is due.
Controlled Foreign Corporations (CFCs) Explained
A foreign corporation becomes a CFC when more than 50% of ownership is held by U.S. shareholders. CFC status triggers additional reporting and potential current-year taxation under GILTI and Subpart F.
Understanding GILTI Tax
Global Intangible Low-Taxed Income (GILTI) requires certain U.S. owners to report and pay tax on foreign earnings, even if no money is distributed. This rule commonly surprises small and mid-size business owners.
Subpart F Income vs GILTI
Subpart F applies to specific categories of passive or mobile income, while GILTI applies more broadly to foreign operating income. Both can create unexpected U.S. tax liability.
Common Form 5471 Mistakes
Common errors include failing to file Form 5471 entirely, filing under the wrong category, incorrect ownership percentages, and missing required schedules.
Penalties for Missing Form 5471 and GILTI Reporting
Penalties start at $10,000 per year per form and can increase rapidly if ignored. Continued non-compliance may lead to additional IRS enforcement actions.
How to Fix Past Non-Compliance
Taxpayers who missed Form 5471 or GILTI reporting may still qualify for IRS compliance programs such as Streamlined Filing Procedures, depending on the facts.
Final Thoughts from Alberto Luna Jr., CPA
Owning a foreign company creates ongoing U.S. tax responsibilities that should never be ignored. In my experience, most compliance issues arise not from intentional avoidance but from lack of proper guidance. Addressing Form 5471 and GILTI issues proactively allows business owners to reduce risk, avoid escalating penalties, and operate with confidence.
